NBIC

On October 29, U.S. cloud computing service provider stocks generally weakened in pre-market trading, with ServiceNow (NOW) falling nearly 19%, Alphabet (GOOGL) dropping over 10%, NEBIUS (NBIS) and CoreWeave (CRWV) both falling over 6% at one point, IREN (IREN) and Salesforce (CRM) dropping over 5%, and Oracle (ORCL) falling over 2% at one point. The sell-off was mainly triggered by earnings reports from ServiceNow and Alphabet, as market concerns over cloud computing growth quality, AI capital expenditure returns, and corporate valuations quickly spread across the sector.

Source: TradingView

ServiceNow reported third-quarter revenue of $4.106 billion, up 20.5% year-over-year and slightly above market expectations, but adjusted earnings per share were only $1.00, below analysts' forecast of $1.02. What concerned investors even more was that the company expects fourth-quarter current remaining performance obligations (cRPO) to grow 18.5% year-over-year, down from 20.5% in the third quarter, signaling a potential slowdown in revenue growth recognizable over the coming year. Although the company raised its full-year subscription revenue and free cash flow margin guidance and increased its 2026 AI Annual Contract Value target to $1.7 billion, these positives were insufficient to offset the pressure from weaker-than-expected earnings and cooling order growth.

Alphabet's earnings report further amplified market caution. The company's third-quarter revenue stood at $127.58 billion, below market expectations, and advertising revenue also missed Wall Street forecasts. Earnings per share were $2.12, dragged down by an unrealized loss of approximately $8.2 billion on its SpaceX equity stake.

Meanwhile, Alphabet's capital expenditures for the quarter surged to $51.36 billion, turning free cash flow to negative $9.1 billion, with management expecting capital spending to increase significantly further in 2027. Although Google Cloud revenue surged 103% year-over-year to $30.71 billion, investors were more focused on the slowing growth of search advertising and when the massive AI investments will translate into stable cash returns.

Broadly speaking, the market is reassessing the growth prospects and valuations of software companies amid the AI boom. As AI infrastructure spending continues to escalate, investors are paying attention not only to demand for cloud services and AI products, but also placing greater emphasis on whether companies can convert technology investments into sustainable revenue, profits, and cash flow.

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